The collapse of the equity markets in 1929 caused the failure of many banking institutions that invested heavily in the equity markets. Laws enacted by the U.S. Congress after the equity market collapse prevented banks from investing in the equity or stock market. The Security Exchange Commission Act of 1934 and Glass-Stegall Act of 1934, for example, placed the stock markets and many banking institutions under the regulatory administration of the Security Exchange Commission, The Office of the Comptroller of the Currency, The Office of Thrift Supervision, and the Federal Reserve Bank. The purpose of these administrative acts was to prevent banking institutions from investing in equities and preclude a similar failure of banks or financial institutions from over-investing in questionable or risky equities. However, a disadvantage of preventing banking financial institutions from investing in equities or stocks is that banking institutions cannot take advantage of significant upswings in the equities markets to meet obligations, such as employee benefit plans. Between 1970 to 2000, many employers, including banking institutions, instituted deferred compensation programs in which employees would agree to voluntarily defer the receipt of a portion of their compensation. The employer would agree to credit an “interest” on this deferred compensation based on an outside index, such as the prime rate, or a stock market index. A banking institution then becomes liable to its employees who have preferred to defer compensation for a future payment based in part on an increase in a stock index. However, a banking institution is prohibited from owning stocks to hedge its exposure for these future payments. Thus, as the stock market activity during the latter half of the 1990's provided significant growth in funds invested in equities, the banking institutions were precluded from participating in this growth and the monies under their control could not accumulate at a similar rate.
To remedy this inequity imposed on the banking institutions, The Office of the Comptroller of the Currency (OCC) altered the limitations of the Glass-Stegall Act to afford national banking institutions a limited ability to invest in stocks or equities to increase the value of portfolios used to finance certain employee benefit liabilities commensurate with the increase in the equity markets. However, the OCC Bulletin 2000-23 imposes restrictions and reporting regulations upon the banking institutions to safeguard against over-investing in stocks or equities beyond those amounts needed to hedge liabilities or obligations undertaken. In order to meet the reporting regulations, banking institutions must constantly monitor the accounts or account portfolios they manage and declare their compliance to OCC regulations on a regular basis. Banking institutions are subject to significant monetary penalties for failure to comply with the imposed restrictions and reporting requirements. Similar regulations apply to institutions regulated by The Office of Thrift Supervision.
Hence, there is a need for a system that monitors and reconciles the value of capital, funds, assets, or monies banking institutions have invested in equities and their equity linked obligations to insure compliance with imposed restriction and reporting requirements.